Yogi Berra’s Carbon Tax Advice

Yogi Berra once observed, “In theory there is no difference between theory and practice. In practice there is”. Academic analyses often ignore this wisdom because of oversimplified assumptions and a failure to adequately address real world complexity. Such is the case with an article in the September 14 Wall Street Journal—The Coming Price on Carbon by Amy Meyers Jaffe ( University of California, Davis).

The crux of her argument is that the complexity of increasing regulations aimed at carbon is leading companies to move toward a carbon tax because business places a high value on transparency and predictability. If the choice, ignoring for a moment the scientific issue, was a carbon tax or a series of regulations, the answer is straightforward. But, anyone who thinks that by embracing a carbon tax will save them from more regulation is related to Rip Van Winkle.

The Obama Administration and its environmental allies have been pursuing a strategy of increasing complex carbon related regulations as a way to get companies to beg for a carbon tax. Ms. Jaffe might be right that we are at a tipping point on this issue. If so, business might lobby aggressively for a carbon tax, get it and still be saddled with more regulations. The Obama Administration and environmental zealots have been waging a war on fossil fuels and business conceding a carbon tax will just embolden them more. They will only be satisfied when fossil energy is like whale oil, a thing of the past.

Contrary to the assertion in Ms. Jaffe’s article that “some sort of carbon price is needed because emissions have costs” there has been a de-facto price on carbon since the first Clean Air Act in 1970. Constraints on pollution related emissions have imposed costs on fossil fuels. As regulations became more stringent, environmentalists hoped or believed that coal, oil, and gas would be priced out of the market. They seem to have won on coal, but not in other countries. Petroleum based fuels have withstood the regulatory onslaught because oil is abundant, versatile, has high energy density, and is cost-effective relative to alternatives, in spite of their generous subsidies. A carbon tax would add to the cost currently being borne by carbon fuels, not reduce or replace any of them. And, that is the Achilles heal in carbon tax logic. There is no trade-off to be realized.

The case for putting a price on carbon is also based on the assertion that “technological advances have made it cheaper to move away from carbon emitting technologies. While it is true that the cost of producing solar cells and lithium ion batteries has been declining, it is not true that wind, solar, or electric vehicles are cost competitive with fossil energy. The apparent competiveness is based on tax credits and subsidies. Take away the subsidies and government bestowed incentives and the demand for alternatives would dry up. It is also misleading to imply that these alternatives are replacements for carbon. What happens when the wind doesn’t blow and the sun doesn’t shine? Coal or natural gas powered electricity. Germany, which is a leader in promoting alternatives to fossil fuels, has an electricity price about 3 times greater than the US average and has been turning back to coal to compensate for the lack of storage technology and periods when the sun doesn’t shine.

As documented in the George C. Marshall Institute report, A Skeptical Look at the Carbon Tax, a carbon tax, like Clinton’s BTU tax, faces a host of practical problems. The support that Ms. Jaffe sees comes from a coalition of “Bootleggers-and-Baptists” comprised of environmentalists, corporate rent seekers, and government dependents “who will be actively involved in designing its provisions in ways that benefit special interests, undercut any beneficial effects and accentuate its harmful side effects”. And, judging from past experience, a carbon tax will not substitute for other taxes or improve their efficiency, nor will it be implemented without political favoritism. It will be complex and become the equivalent of an ATM for Congress to increase spending.

Ms. Jaffe’s article is based on the assumption that human activities are the dominant cause of climate change. The theory of human induced climate change has not been demonstrated by scientific validation. It is a creation of climate models that have been constructed to create a self-fulfilling prophecy, which they do. The pattern of climate change over human history and the last 100 years is inconsistent with the assertion that increasing CO2 has lead to increasing temperatures since the end of the Little Ice Age. The recent pause/hiatus in warming is also inconsistent with climate orthodoxy. While advocates who claim that the science is settled use the IPCC science assessments as their foundation, they conveniently ignore the list of major uncertainties cited by the IPCC and its gradual reduction in estimated climate sensitivity.

Business and environmentalists may eventually get their desired carbon tax and if they do they will discover that Yogi Berra was right—in the real world there is indeed a difference between theory and practice. They will have been willingly snookered.